Post recession, developers preach caution

Barry Cain, president of Tualatin-based Gramor Development and one of the many eternal optimists in the industry, lost enthusiasm for his work in the past three years.

Barry Cain

It’s a clear indication that business in Portland was as bad as it ever had been … or maybe worse. Even some of the area’s most notable developers were conspicuously absent from the public eye during the recession.

Now, however, many say they’re ready to return to the business of building Portland – although it won’t be business as usual. While most would welcome the return of high rental rates and low vacancies of 2006, they agree that the most recent downturn has taught them the importance of conservativeness and thorough planning.

“It’s a lot easier to juggle the balls and get caught up in the fast pace of the industry when you are going up,” Cain said. “But when things head down it doesn’t take long to remember how important being cautious is.”

A lot of what Gramor did in its first 25 years helped the company navigate this recession, Cain said. But he still gleaned some lessons from this downturn.

“I’ve had it reaffirmed that a good rule to live by is don’t buy the land before you know what you’re going to do with it and you’re ready to use it,” he said.

Cain’s company is beginning work on its biggest project since the recession hit, Progress Ridge TownSquare in Beaverton. In the past, Cain would have moved forward with a project before any anchor tenants were secured. But this time, he decided to wait until he had agreements signed by three anchor tenants and nine additional tenants.

“This industry lost some good developers, and frankly, good people, because they bought land on speculation before the recession,” Cain said.

Art DeMuro, president of Venerable Properties, said he was a fairly conservative borrower even before the financial markets collapsed in the past couple of years.

“The ones that stayed liquid and didn’t over-leverage are the developers that are still here to talk about,” he said. “We compete in a free enterprise system and there is going to be cycles in both directions, so we just don’t want to over-commit to anything.”

DeMuro said he has learned that he has a stake in the success of all of his tenants. Instead of focusing on locking tenants into long-term leases simply to fill spaces, DeMuro plans to conduct his own research to make sure he has the right tenant for the right space in the right part of town.

Developers are generally optimistic that the market is experiencing a turnaround, but they all believe that more job growth is needed before Portland can experience a full recovery.

“The office market and retail market both rely heavily on job growth,” said Mark Edlen, managing principal of Gerding Edlen Development. “So we are going to be really cautious before going ahead with any of those types of projects.”

Instead, Edlen’s company is looking at apartments as a good investment in Portland nowadays. Over the past nine months, the company has leased 265 apartments at the Indigo, where only seven units are still vacant. Another downtown Portland complex, the Cyan, hit 85 percent occupancy during the same time period.

Beam Development Principal Brad Malsin, meanwhile, is looking at building more office space. He thinks projects such as the Convention Plaza Building, part of the Burnside Bridgehead redevelopment site, can convince new businesses to locate in Portland and spur job creation.

“To improve employment in Portland we don’t need more class-A office space; we need as many creative, flexible and cost-effective spaces as possible,” Malsin said. “We need to create employment districts and business districts that bring the creative population in Portland together and let them collaborate.

“This is what we’ve always tried to do, but now we want to be even more selective on what we do. We want everything to fit our brand and fit our strategy.”

Developers said they were glad to still be in business.

“These cycles are part of the industry, but they are still tough to go through,” DeMuro said. “But I think I can speak for most developers in town when I say that just because things are tough, I haven’t lost my faith in the industry, in Portland or the tenants we build for.”